Top 10 Legal Documents For Small Businesses

Top 10 Legal Documents For Small Businesses

So, you’ve got the idea and are all psyched to get going! But one thing holds you back every time you try to get the ball rolling; where do I start? do I have all the right documents to ensure I have a working business?

These are the 10 most important legal documents a small business will need:

1. Memorandum Of Understanding

When you are ready to start your own business. The very first thing you need to do is to ensure that you and your business partners are committed to a common course of action. A memorandum of understanding, although not legally binding, is the first stage before a formal contract. It is a way of solidifying a deal and is often used to make sure all parties are on the same page. This document establishes your intentions and will spell-out the essential terms of your agreement.

A memorandum of understanding will also help ensure that expectations are aligned between business partners. It makes clear what you can and cannot expect from one another.

2. Memorandum Of Association & Articles Of Association

When your business idea is on track it is time to officially set-up your business. You will need a Memorandum of Association and Articles of Association, both of which are essential founding legal documents for every business in the UK.

The Memorandum of Association sets in stone your intention to form a company, while, the Articles of Association establish the rules about running and owning it. They also define the purpose of your business as well as the basic rights and obligations of directors and shareholders.

Both are standard legal documents and may be easily amended to add any provision that you may wish to include to better reflect your vision. Don’t worry about getting these drafted by a lawyer from the very start, because, when you incorporate a private limited company in the UK, you will automatically be provided with model articles.

3. Shareholders’ Agreement

To ensure the smooth running of your business, a well-drafted Shareholders’ Agreement is required to outline the relationship between shareholders and to establish their respective rights and obligations. Among other things, it defines each party’s proportion of shares, profit sharing and the company’s decision-making procedures. Without one, in the event of a dispute or simple doubt you will have to rely on the narrowly-drafted constitutional documents, namely, the Memorandum of Association and Articles of Association (see above).

A Shareholders’ Agreement serves the purpose of safeguarding shareholders’ interests in various circumstances. It allows you to protect your investment in the business by including clauses that force shareholders to sell their shares back to you in certain sets of circumstances.

4. Non-Disclosure Agreement

A non-disclosure agreement creates a trusting relationship between the signatories. You may use it to protect any kind of information that you may want to share but wish to remain confidential.

It is always useful if your business involves an innovative idea or know-how. This legal document is also commonly used when presenting a new idea or product to investors, or when dealing with third parties i.e. contractors, distributors.

If you do not have a non-disclosure agreement in place, you may risk losing your intellectual property rights to your product and brand name. The people or businesses you share your business ideas with, may share them with others, or even implement them themselves. You may as a result be exposed to competition and face information leaks that could lead to loss of potential investment opportunities.

5. Directors’ Service Agreement

Directors are responsible for running a business and this is why their authority needs to be clearly defined to avoid any complications. Think of a Directors’ Service Agreement as an employment agreement which deals with the directors core duties towards the company.

It outlines the rights and obligations of directors that go beyond the basic duties that are imposed on them by law. The document will typically include a definition of the director’s role in the company, the salary, working hours as well as provisions regarding termination of employment.

It is a legal requirement to have some form of written agreement between your business and its directors within 2 months of a director beginning work.

6. Employment Agreement

Needless to say that once your business starts expanding you will need an Employment Agreement for any new recruits. An Employment Agreement will specify the employee’s role but most importantly, it will limit the employer’s liability.

It is necessary to put one in place as in the absence of a written agreement, default legal provisions will apply which tend to favor employees.

Do not forget to consider the types of staff you may want to hire (i.e. intern, consultant, contractor) as a different type of employment agreements will be needed in each case.

7. Terms & Conditions For The Supply Of Goods Or Services

It is fundamental to define the terms on which you trade with your clients when supplying goods and/or services. Your business will need to have a comprehensive set of Terms and Conditions both when acting as a supplier and as a buyer during its lifecycle.

This essential legal document includes information on contract formation as well as product and service specifications. It deals with payment process, delivery, cancellations and returns issues. As a business owner it is important to include provisions to limit your liability and to account for the event of insolvency as well as to determine the applicable laws in case of a dispute.

Your Terms and Conditions will be the main point of reference in case of dispute and therefore will have a great impact on your business. You will find that standard Terms and Conditions will usually apply, however, they can be industry specific. So, it is well worth getting tailor-made legal advice.

8. Website T&Cs

You might be wondering if anyone actually reads those, but, Terms and Conditions are essential for any website owner. They form an online agreement between the client and the business that outlines each party’s rights and obligations and it also provides basic guidelines on how to use the website.

So, why are Website Terms and Conditions needed? Without them you risk being exposed to liability for your website’s content and any fault that may arise as a results of its use. They also help safeguard your own intellectual property as well as your user’s data.

This legal document will highly vary depending on the type of business in question, it, therefore, is essential to get terms and conditions that reflect your business and do not expose you to any uncertainty.

9. Cookie Policy & Privacy Policy

As a website or app owner, you will probably use cookies to provide a customised and user-friendly experience to your online users.

A cookie is a small text filed that is stored onto the user’s computer which gathers information. A Cookie Policy will inform users about the use of cookies. It will explain which types of cookies are used, the kind of information they gather, their purpose, and finally the procedure of deleting the cookies.

Given the widening privacy concerns it is required by law to have an extensive Privacy Policy that explains how your business collects, uses, discloses your customer’s personal data. The policy will have to focus on personal information that directly relates to the customers (i.e. name and address) to prevent them from exposing their identity.

This is particularly important in light of the forthcoming General Data Protection Regulation which will come into force in May 2018 and will impose fines of up to €20 million on businesses for privacy breaches.

10. Software Development Agreement

Lastly, you may need a Software Development Agreement if software is being developed as part of your business. This agreement will outline your relationship with your developer and will map out the overall development process. Typically, the developer working for your will develop the specified software and will transfer the IP created back to you.

This technical legal document will set the scope of the project, the payment for the work and will address any confidentiality concerns. One cannot stress enough the importance of having in place a Software Development Agreement as in its absence you may risk getting an unusable or faulty software. Even worse, the developer could run away with valuable information about your business.

Have in mind that you will need to create a new contract for every new software as they may vary considerably due to their nature.

Getting the right legal documents drafted by specialist lawyers is a must for your small business. They are essential for a successful business to kick-off and ensure all you hard work does not go to waste.

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“I don’t want to spend an arm and a leg to get this done.”– Luke, Founder and CEO of Happy Clouds LTD

Luke is founder and CEO of Happy Clouds LTD, a cloud service provider for companies of all sizes. He started this business by himself but shortly after took on a co-founder, Lucy. Luke and Lucy have been working together for a year but have yet to set up a shareholders’ agreement.

They have been bootstrapping Happy Clouds’ growth and so have spent the bare minimum. A year on, the business is generating revenue and as the client base grows, Luke and Lucy need to ensure that their business foundations and customers contracts are bulletproof.

Luke and Lucy are fast-paced – they don’t have time to spend explaining their business model to lawyers, they want someone who can quickly understand what they want and run with it. They also don’t want to spend an arm and a leg to get this done.

Luke and Lucy come to Linkilaw. After getting their initial terms of business set out, they realise they also will need another 3 to 4 contracts in the next 12 months.

PRO MEMBERSHIP

Contracts (drafted by specialist lawyers)

4 contracts

Drafts allowed per contract

3 drafts

Bonus legal advice

Digital only

Priority of service

Over non-members

Speed of contract turnaround

7 working days

Annual business review conference call

Included

£2,500/year or £235/month

“We are scaling up but we want to make sure we get everything updated and in place too.”– Liam, Co-Founder of WineToGo

Liam is the co-founder of WineToGo. His business sources wine from a large network of wine producers and helps their customers select the best wines for their taste to get delivered to their homes. He founded his business with 3 co-founders (Lance, Lily and Larry) and has a shareholders’ agreement in place. The four of them met at university and decided to build their marketplace.

Lance and Larry are passionate about wine and have a background of oenology. Lily is a developer; she built the first platform and collaborated with Liam on business-related matters. They all work in a small office in North London.

After 1.5 years in business, WineToGo features a first selection of 20 UK wine providers and developed its activity in London. However, the business requires funding to expand to the UK (especially Manchester and Birmingham).

Liam and his co-founders are looking towards the future and are happy to get legal advice. They have a focus on investment but also want to explore the possibility of needing future contracts. They plan on having more team members in the near future (business development consultants to prospect wine producers and developers). Liam and his co-founders want to know what to expect and they should have in place for their growing company.

PRO MEMBERSHIP FOR

Contracts (drafted by specialist lawyers)

5 contracts

Drafts allowed per contract

4 drafts

Type of communication

Digital + calls + in-person meetings

Priority of service

Over non-members and digital members

Speed of contract turnaround

5 working days

Annual business review conference call

Included

Bonus legal advice

Unlimited

£7,500/year or £650/month

“My businesses are successful and I want legal services in the long term” – Lynn, Founder of ConsciousDressToImpress.com.

Lynn is a serial entrepreneur who has founded 6 businesses and successfully exited 3 of them. Her sixth and last business is a sustainable fashion brand that retails exclusively online on her website, ConsciousDressToImpress.com.

Lynn is currently generating a stable £4 million a year of revenue and makes between £750,000 and £950,000 of net profit yearly. She really loves being able to bring sustainability and awareness to one of the most polluting and wasteful industries on the market, and now wants to stop building businesses to just focus on this one.

Unlike her previous businesses, Lynn does not want to sell. She wants to stay managing director for the foreseeable future, as ConsciousDressToImpress grants her a job she loves and stable, high income.

Lynn has used Linkilaw previously in her other businesses and loved the work they did for her. It was made easy, accessible, and affordable. She loves being a Linkilaw member because she feels the Linkilaw team is focused on the long-term and on maintaining an honest, professional and friendly relationship with her and her business. Amelie, her dedicated legal point of contact is also a fan of sustainable fashion and loves wearing ConsciousDressToImpress.

PRO MEMBERSHIP

Contracts (drafted by specialist lawyers)

6 contracts

Drafts allowed per contract

3 drafts

Type of communication

Digital + calls

Priority of service

Over non-members and digital members

Speed of contract turnaround

5 working days

Annual business review conference call

Included

Bonus legal advice

30 minutes per contract

£9,000/year or £800/month

“I want a check-up on my contracts and make sure everything is in place.”– Logan, Founder of InvestMap App

Logan created the InvestMap App 5 years ago with one of his long-term colleagues, Lauren. InvestMap is the tool for people who never invested and want to start. Via the app, the consumer learns about how to make wise and long-term beneficial choices; is invited to invest at the right time, and gets updated on the next gold mine.

Logan and Lauren already have a few consultants and their app has been adopted increasingly that it’s now difficult for them to manage their activity with their original team. They now want to implement more structure into InvestMap in order to get more staff and be able to get to the next level.

Logan comes to Linkilaw and expects to review the first contracts that have been drafted when he started his business and get more for his new coming employees. He is very keen on ticking boxes and making sure that InvestMap is secure as it goes on.

It’s been 8 years since Leah created Move.In, selling kits for students moving to another city (including cutlery, first food, sanitary and emergency essentials). Leah started on her own the business but hired 41 employees during these couple of years. She has now 30 employees and operated over the United Kingdom, Germany and France.

With long-term partner contracts who feed her a stable stream of leads, Move.In has established itself as a leader in the market and currently generates over £3 million of yearly revenue. Its growth is also steady (5-10% a month).

Leah is looking for a legal advisor who will take on the role of in-house legal counsel, but without working full-time. She wants to work with someone who knows and understands her business and proposes the most commercially minded decisions. She doesn’t have the budget for full-time legal counsel, but would nevertheless like to have a lawyer she can reach whenever she wants.

Leah was looking for someone who had expertise in both commercial contracts – ensuring she created real win-win situations in her partnerships – and employment – managing employee onboarding documents such as offer letters, employment and option agreements, staff handbook. Leah now works with a dedicated Linkilaw lawyer and is delighted that she is able to work with a senior lawyer at a rate that is significantly under her budget.

PRO MEMBERSHIP

Contracts (drafted by specialist lawyers)

9 contracts

Drafts allowed per contract

2 drafts

Type of communication

Digital + calls + meetings

Priority of service

Over non-members and digital members

Speed of contract turnaround

7 working days

Annual business review conference call

Included

Bonus legal advice

1 hour per contract

£12,800/year or £1,200/month

“I want to get legal work sorted with a moderate budget.”– Lara, App developer

Lara is an app developer who created custom mobile applications for startups. She often works from her clients’ offices to get immediate feedback on her work. When she’s not working from a client’s office, she works from a co-working space or from a local cafe. Her accountant recently told her she should create a business entity for tax and liability purposes.

Lara’s business is already taking off, so she has a moderate budget to spend on getting her legal work sorted. She knows she wants to incorporate her business, write her own terms of business to use with clients (instead of just accepting the terms they provide her with), and make sure her new website has the documents it needs, but she’s not confident in her legal knowledge. She wants access to legal advice for all the small questions that pop-up day-to-day.

Lara loves working with Linkilaw because her dedicated legal point of contact, Gillian, is knowledgeable, responsive and friendly. She likes that Gillian knows and understands her business and long-term goals. The legal solutions Lara receives from Linkilaw are not only accurate, but they are also commercially-minded and thoroughly thought through.

Lara is grateful to have been introduced to Linkilaw by a friend and she now recommends the Linkilaw membership to her clients.

PRO MEMBERSHIP

Contracts (drafted by specialist lawyers)

3 contracts

Drafts allowed per contract

5 drafts

Type of communication

Digital + calls

Priority of service

Over non-members and digital members

Speed of contract turnaround

7 working days

Annual business review conference call

Included

Bonus legal advice

Unlimited

£4,000/year or £350/month

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